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The growing popularity of internet and home banking has finally forced UK banks to speed up the time it takes to transfer funds between accounts.

At the moment, funds can take at least three days to clear. Once the new system is up and running, though, the clearing times on electronic payments from internet or phone punters should mean that cash is transferred on the same day.

The pledge to reform the UK's banking system follows the creation of an industry task force chaired by the Office of Fair Trading (OFT) to examine the issue of faster payment services.

The banking industry now has six months to agree on a technological platform for the new system. Top of the list for those involved is to ensure that whatever is introduced is "suitably robust, secure and efficient with the capacity to meet longer-term requirements".

The new system is expected to be in place by the end of 2007.

Paul Smee, chief exec of bank clearing group APACS said that the "advent of the Internet has brought with it a growing expectation that online payments should move speedily, at the touch of a button".

"This new service will not only impact Internet payments but also phone and standing order payments," he said.

And although the number of automated payments remains low, they are expected to mushroom in the future as online banking continues to grow.

OFT bigwig Jonathan May said today's announcement was "good news for bank customers".

"Telephone and Internet payments and standing orders should all be speeded up and the money could be available to the recipient on the same day," he said. ®